Penny Stocks To Watch As Traders Play Stock Market Game With Options Penny stocks with options and unusual activity.
By J. Samuel
This story originally appeared on PennyStocks
Why would anyone trade penny stocks? Let me answer that quickly: to make money in the stock market. Other than the obvious, since penny stocks are so cheap, you can purchase many shares and leverage small sums of capital with the potential of otherworldly gains. The list continues growing as to how many penny stocks explode hundreds or thousands of percentage points within a matter of hours or days.
There are many risks involved, but if you're wondering if you can get rich off penny stocks, the short answer is "yes,' but you must know how to get started the right way. Playing a game of darts with stock symbols isn't the best strategy. Looking for trends and putting together a well-researched list of penny stocks is. Today we do exactly that.
Penny Stocks To Watch
- Ring Energy Inc. (NYSE: REI)
- Uranium Energy (NYSE: UEC)
- Exela Technologies Inc. (NASDAQ: XELA)
Penny Stocks To Watch With Unusual Options Activity
This isn't necessarily a stock market game being played. But the options market can tell you some things about market sentiment. I know we talked about how penny stocks are cheap, and while you might not expect them to have options, there are plenty that does. If you're brand new to options, read our article, Trading Options 101: A Beginner's Guide, to get up to speed with the basics.
Essentially, traders tend to look at the options market for different reasons. One of these reasons is identifying "unusual activity" or overly bullish and bearish "bets" on specific stocks. For example, if there's very little Open Interest but all of a sudden you see thousands of contracts traded during a single session, it might raise attention.
If there's a large volume of Calls trading, the general tone is that "someone" thinks something bullish could happen and vice versa for Puts. However, it's worth noting that options can also be utilized as a hedge. Options traders may short the Call or Put to collect premiums. They might also buy puts if they have a significant stock position to protect them from the chances of a downside move and the opposite for a prominent short position.
Volume can only tell you so much but is worth noting all the same when looking for the market's sentiment. The question you need to answer for yourself: are traders just playing a stock market game using options as their "toy," or does this activity suggest something else?
Ring Energy Inc. (NYSE: REI)
Energy penny stocks are on fire right now. Thanks to the Russia-Ukraine conflict, everything from raw materials companies to refiners and shippers is taking part in the action. In this case, Ring is your run-of-the-mill oil and gas exploration company focused on the Permian Basin in West Texas and New Mexico. In its recent financial and operation update, leadership laid the groundwork for how the company is setting itself up in 2022 to grow. In particular, Q4 sales volumes jumped to more than 9,000 barrels of oil equivalent per day, up 11% from the third quarter. Meanwhile, January saw its 2022 drilling program begin.
"The success of our 2021 drilling program supports our plans of running a continuous one-rig drilling program for the foreseeable future in 2022…Beginning January 1, 2022, nearly 60% of our low-priced hedges rolled off allowing for substantially higher revenue in 2022 assuming the current oil price environment continues. "
Paul D. McKinney, CEO
McKinney isn't the only one showing optimism in Ring. A look at the options market shows a similar sentiment initially.
REI Stock & Unusual Options Volume
In particular, the REI Call options contracts expiring this month are in focus. The $3.50 and $4 strikes have seen significant volume higher open interest, and the $4 strike, in particular, recorded some unusual activity today. More than 19,000 contracts traded compared to just 2,761 of Open Interest.
Uranium Energy (NYSE: UEC)
Uranium stocks are also part of the energy stock discussion, with miners, refiners, and suppliers benefiting. Thanks to the latest news on the Russia-Ukraine conflict, nuclear power is at the forefront of the discussion. Russia seized a major nuclear plant in Ukraine this week, with sympathy sentiment pushing traders' attention to nuclear power stocks.
Uranium Energy supplies raw materials for nuclear power production and currently holds two production-ready platforms in Texas and Wyoming. It also has a portfolio of resource-stage uranium projects in Arizona, Colorado, New Mexico, and Paraguay.
Despite an initial drop in price, UEC stock, overall, has held its uptrend over the last few weeks. Friday's action was much more volatile than other sessions. However, by early afternoon, the penny stock managed to break back above $3.70. This bullishness was further echoed in the options market as well.
UEC Stock & Unusual Options Volume
In the case of UEC stock, we looked at the March and April contracts. In particular, UEC's April 14th $4 Calls saw unusual volume on Friday. It saw more than 1,300 contracts trade compared to just 663 of Open Interest. Meanwhile, the March Call contracts, as a whole, showed a considerable level of Open Interest for all strikes compared to the same strikes for the Put contracts. Does this mean the market is taking an even more bullish bet on UEC stock, or is this a hedge for a pending drop?
Exela Technologies Inc. (NASDAQ: XELA)
We've seen a trend in the retail market that involves penny stocks under $1. These are some of the cheapest penny stocks today and can become a source of enormous volatility. Even the slightest move of a few cents can equate to a large percentage move. Exela Technologies is one of the penny stocks under $1 that seems to have gained even more attention among options traders. We'll discuss more below.
One of the biggest catalysts placing XELA stock on traders' radars was a news update earlier this year. The company announced that it had renewed a $35 million contract with a consulting firm. Exela also announced a 100 million share buyback at $1 per share through an exchange offer of new notes. At the time, it represented a premium of more than 80%. While the exchange offer was to have closed last month, it was recently extended to expire later this month.
XELA Stock & Unusual Options Volume
As this exchange offering has taken place, the options market seems to have woken up a bit more. In particular, the March 18th $1 and $2.50 Calls came to light. Both have Open Interest of between 26,000 and 46,791 contracts. What's more, the $1 strike calls saw another surge of volume today, trading more than 2,400 contracts before the end of the day.
Finding Top Penny Stocks To Buy
This is just one way to look for penny stocks to add to your watch list. Sentiment has become a critical driver for retail traders in particular. Whether it's unusual options activity or above-average trading volume, news, filings, a mix of each – data is king. Knowing how to use that data to your advantage is also just as important. Based on this info, are any of these names on your list of penny stocks right now?
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